Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. (Note that "Not Affected" means that the event does not affect that element of the financial statements or the event causes an increase in that element that is offset by a decrease in the same element.)Increase = IDecrease = DNot Affected = NAOn December 31, Year 1, Flagler Corporation had a balance of $20,000 on a line-of-credit with City Bank. Flagler made a payment of $11,200, which included $10,000 on the principal and $1,200 interest. Show the effects of this transaction on the elements of the financial statements.AssetsLiabilitiesEquityRevenuesExpensesNet IncomeStmt of Cash

Question

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What will be an ideal response?

Answer 1

(D) (D) (D) (NA) (I) (D) (D)
Making a payment on a line of credit decreases assets (cash) for the amount of the payment, decreases liabilities (line of credit liability) for the amount of the principal payment, and decreases stockholders' equity (retained earnings). It increases expenses (interest expense) for the amount of the interest payment, which decreases net income. The principal repayment is reported as a cash outflow for financing activities, while the interest payment is reported as a cash outflow for operating activities on the statement of cash flows.